Altair Engineering (ALTR) 8-K Altair Announces Third Quarter 2018 Financial Results

Exhibit 99.1

Altair Announces Third Quarter 2018 Financial Results

Third Quarter Software Product Revenue Increased 13% Year-over-Year

TROY, Mich. – November 8, 2018 –Altair (Nasdaq:ALTR) released its financial results for the third quarter ended September 30, 2018.

“Altair’s third quarter results reflected better than expected profitability and continued software momentum, despite greater than expected foreign exchange headwinds,” said James Scapa, Founder, Chairman and CEO. “We are seeing broad-based growth across our business, including in the auto sector, due to the superior accuracy and time to value Altair’s solutions provide in the product design process.”

Scapa continued, “The pending acquisition of Datawatch significantly advances our vision of simulation driven design by accelerating the convergence of data and simulation. Similarly, the recently completed acquisition of SimSolid is a revolutionary advance in design simulation that will greatly enhance the accuracy and speed of product design. We are confident our expanded product offerings position us well to build upon our leadership in the CAE market and generate continue strong revenue growth and expanding profitability.”

Third Quarter 2018 Financial Highlights

• Software product revenue was $71.3 million, an increase of 13% from $63.2 million for the third quarter of 2017.

• Total revenue was $93.9 million, an increase of 11% compared to $84.9 million for the third quarter of 2017.

• Net income was $7.3 million, compared to net loss of $(29.6) million for the third quarter of 2017. The third quarter of 2018 included gain on the sale of a building of $4.4 million, while the third quarter of 2017 includednon-cash stock-based compensation expenses of $25.3 million. Diluted net income per share was $0.10, based on 76.7 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $(0.59) for the third quarter of 2017, based on 50.6 million diluted weighted average common shares outstanding.

• Adjusted EBITDA was $9.5 million, compared to $7.0 million for the third quarter of 2017. Adjusted EBITDA represents net income (loss) adjusted for income tax expense, interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management.

• Non-GAAP net income was $5.1 million, compared to $4.0 million for the third quarter of 2017.Non-GAAP diluted net income per share was $0.07, based on 77.0 millionnon-GAAP diluted common shares outstanding, compared tonon-GAAP diluted net income per share of $0.06 for the third quarter of 2017, based on 62.8 millionnon-GAAP diluted common shares outstanding.

Non-GAAP net income excludes stock-based compensation, amortization of intangible assets related to acquisitions, and certain tax adjustments.

• Cash flow from operations was $3.1 million, compared to an outflow of $(8.7) million for the third quarter of 2017.

• Free cash flow, which consists of cash flow from operations less capital expenditures, was $0.9 million compared to negative $(10.7) million for the third quarter of 2017.

Business Outlook

Based on information available as of today, Altair is issuing guidance for the fourth quarter and full year 2018 as indicated below. This guidance does not include any impact from the pending acquisition of Datawatch.

	Fourth Quarter 2018					Full Year 2018
Software Product Revenue	$	75.0	to	$	76.0	$	287.0	to	$	289.0
Total Revenue	$	98.0		$	99.0	$	378.0		$	380.0
Net Income	$	5.5		$	6.5	$	18.3		$	19.3
Adjusted EBITDA	$	11.5		$	12.5	$	36.0		$	37.0
Non-GAAP Net Income	$	7.9		$	8.9	$	22.5		$	23.5

(All figures in millions)

Conference Call Information

What:	Altair Third Quarter 2018 Financial Results Conference Call
When:	Thursday, November 8, 2018
Time:	4:30 p.m. EST
Live Call:	(866)754-5204, domestic
	(636)812-6621, international
Replay:	(855)859-2056, passcode 5899735, domestic
	(404)537-3406, passcode 5899735, international
Webcast:	http://investor.altair.com (live & replay)

***

Non-GAAP Financial Measures

This press release contains the followingnon-GAAP financial measures: Adjusted EBITDA,Non-GAAP Net Income,Non-GAAP Net Income Per Share and Free Cash Flow.

Altair believes that thesenon-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations. The Company’s management uses thesenon-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. The Company also believes that the use of thesenon-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software companies, many of which present similarnon-GAAP financial measures to investors.

Company management does not consider thesenon-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of thesenon-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining thesenon-GAAP financial measures. Altair urges investors to review the reconciliation of itsnon-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company’s business.

Reconciliation tables of the most comparable GAAP financial measures to thenon-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

About Altair

Altair transforms design and decision making by applying simulation, machine learning and optimization throughout product lifecycles. Our broad portfolio of simulation technology and patented units-based software licensing model enable Simulation-Driven Innovation for our customers. With more than 2,000 employees, Altair is headquartered in Troy, Michigan, USA and operates 71 offices throughout 24 countries. Altair serves more than 5,000 customers across broad industry segments. To learn more, please visitwww.altair.com.

Cautionary Language Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our business outlook, potential growth, potential impact of the SimSolid and Datawatch transactions and expanded product offerings, and our reconciliations of projectednon-GAAP financial measures. These forward-looking statements are made as of the date of this release and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Altair’s control. Altair’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in Altair’s quarterly and annual reports filed with the Securities and Exchange Commission as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Altair’s views as of the date of this press release. The Company anticipates that subsequent events and developments will cause its views to change. Altair undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Altair’s views as of any date subsequent to the date of this press release.

Information regarding the Datawatch transaction

The merger agreement governing the pending Datawatch acquisition provides for a tender offer (the “Offer”) followed by a merger of a wholly-owned subsidiary of Altair (Dallas Merger Sub, Inc.) with and into Datawatch, subject to regulatory approval and other customary conditions. The Offer has not yet commenced, and this communication is neither an offer to purchase nor a solicitation of an offer to sell any shares of the common stock of Datawatch or any other securities. On the commencement date of the Offer, a tender offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and related documents, will be filed with the United States Securities and Exchange Commission (the “SEC”) and Datawatch will file a Solicitation/Recommendation Statement on Schedule14D-9 relating to the Offer with the SEC. The offer to purchase shares of Datawatch common stock will only be made pursuant to the offer to purchase, the letter of transmittal and related documents filed with such Schedule TO.DATAWATCHINVESTORS AND SECURITY HOLDERS ARE URGED TO READ BOTH THE TENDER OFFER STATEMENT AND THE SOLICITATION/RECOMMENDATION STATEMENT REGARDING THE OFFER, AS THEY MAY BE AMENDED FROM TIME TO TIME, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.The tender offer statement will be filed with the SEC by Dallas Merger Sub, Inc. and Altair, and the solicitation/recommendation statement will be filed with the SEC by Datawatch. Investors and security holders may obtain a free copy of these statements (when available) and other documents filed with the SEC at the website maintained by the SEC at www.sec.gov or by directing such requests to D.F. King & Co., Inc. toll-free at (877)864-5060.

Investor Relations

Brian Denyeau

ICR

248-614-2400 ext. 346

ir@altair.com

Media Relations

Dave Simon

Altair

248-614-2400 ext. 332

pr@altair.com

Altair Engineering Inc. and Subsidiaries

Consolidated Balance Sheets

	September 30, 2018				December 31, 2017
(In thousands, except per share data)	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	197,413			$	39,213
Accounts receivable, net		69,046				86,635
Inventory, net		1,234				1,980
Income tax receivable		9,841				6,054
Prepaid expenses and other current assets		12,149				10,006
Total current assets		289,683				143,888
Property and equipment, net		29,679				31,446
Goodwill		62,905				62,706
Other intangible assets, net		22,329				24,461
Deferred tax assets		7,837				8,351
Other long-term assets		15,580				17,019
TOTAL ASSETS	$	428,013			$	287,871
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	400			$	232
Accounts payable		5,592				4,880
Accrued compensation and benefits		28,750				26,560
Obligations for acquisition of businesses		831				13,925
Other accrued expenses and current liabilities		20,222				21,744
Deferred revenue		136,991				130,122
Total current liabilities		192,786				197,463
Long-term debt, net of current portion		670				178
Deferred revenue, non-current		9,722				9,640
Other long-term liabilities		13,036				17,647
TOTAL LIABILITIES		216,214				224,928
Commitments and contingencies				��
MEZZANINE EQUITY		2,352				2,352
STOCKHOLDERS’ EQUITY:
Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and outstanding		—				—
Common stock ($0.0001 par value)
Class A common stock, authorized 513,797 shares, issued and outstanding 38,120 and 26,725 shares as of September 30, 2018 and December 31, 2017, respectively		4				2
Class B common stock, authorized 41,203 shares, issued and outstanding 32,171 and 36,508 shares as of September 30, 2018 and December 31, 2017, respectively		3				4
Additional paid-in capital		370,402				232,156
Accumulated deficit		(153,759	)			(166,499	)
Accumulated other comprehensive loss		(7,203	)			(5,072	)
TOTAL STOCKHOLDERS’ EQUITY		209,447				60,591
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY	$	428,013			$	287,871

Altair Engineering Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2018			2017			2018			2017
Revenue
Software	$	71,302		$	63,208		$	212,258		$	176,905
Software related services		8,692			8,574			26,872			25,749
Total software		79,994			71,782			239,130			202,654
Client engineering services		12,155			11,477			36,652			36,071
Other		1,722			1,679			5,386			4,741
Total revenue		93,871			84,938			281,168			243,466
Cost of revenue
Software*		9,831			9,166			32,736			26,799
Software related services		6,352			6,457			19,573			20,230
Total software		16,183			15,623			52,309			47,029
Client engineering services		9,817			9,231			29,977			29,200
Other		1,204			1,448			3,416			3,745
Total cost of revenue		27,204			26,302			85,702			79,974
Gross profit		66,667			58,636			195,466			163,492
Operating expenses:
Research and development*		24,301			27,590			71,748			69,198
Sales and marketing*		19,275			22,345			58,435			58,683
General and administrative*		17,234			29,175			51,636			66,465
Amortization of intangible assets		1,739			1,189			5,665			3,287
Other operating income		(4,850	)		(735	)		(7,433	)		(4,065	)
Total operating expenses		57,699			79,564			180,051			193,568
Operating income (loss)		8,968			(20,928	)		15,415			(30,076	)
Interest expense		31			634			92			1,793
Other (income) expense, net		(970	)		52			(2,046	)		838
Income (loss) before income taxes		9,907			(21,614	)		17,369			(32,707	)
Income tax expense		2,600			8,012			4,629			6,353
Net income (loss)	$	7,307		$	(29,626	)	$	12,740		$	(39,060	)
Income (loss) per share:
Net income (loss) per share attributable to common stockholders, basic	$	0.10		$	(0.59	)	$	0.19		$	(0.78	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.10		$	(0.59	)	$	0.17		$	(0.78	)
Weighted average shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, basic		70,001			50,606			66,429			50,374
Weighted average number of shares used in computing net income (loss) per share, diluted		76,709			50,606			74,182			50,374

* Amounts include stock-based compensation expense as follows (in thousands):

	(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of revenue – software	$	8	$	326	$	24	$	342
Research and development		175		6,711		330		10,495
Sales and marketing		140		4,045		315		6,160
General and administrative		240		14,183		544		22,305
Total stock-based compensation expense	$	563	$	25,265	$	1,213	$	39,302

Altair Engineering Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(In thousands)	2018			2017
OPERATING ACTIVITIES:
Net income (loss)	$	12,740		$	(39,060	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		10,895			7,895
Provision for bad debt		455			517
Stock-based compensation expense		1,213			39,302
Gain on sale of assets held for sale and other		(4,544	)		(20	)
Impairment of intangible assets		608			—
Deferred income taxes		(300	)		(4,793	)
Other, net		(116	)		169
Changes in assets and liabilities:
Accounts receivable		15,674			12,016
Prepaid expenses and other current assets		(6,334	)		431
Other long-term assets		36			(11,024	)
Accounts payable		796			(1,583	)
Accrued compensation and benefits		2,650			(211	)
Other accrued expenses and current liabilities		(4,626	)		6,122
Deferred revenue		11,275			7,694
Net cash provided by operating activities		40,422			17,455
INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of cash acquired		(15,950	)		(15,582	)
Proceeds from sale of assets held for sale and other		6,613			20
Capital expenditures		(5,333	)		(4,367	)
Payments for acquisition of developed technology		(2,738	)		(2,120	)
Other investing activities, net		—			(29	)
Net cash used in investing activities		(17,408	)		(22,078	)
FINANCING ACTIVITIES:
Proceeds from issuance of Class A common stock in follow-on public offering, net of underwriters’ discounts and commissions		135,572			—
Proceeds from the exercise of stock options		1,929			476
Payments for follow-on public offering and initial public offering costs		(541	)		(2,595	)
Payments for redemption of common stock		(119	)		(918	)
Principal payments on long-term debt		(101	)		(8,392	)
Payments on revolving commitment		—			(71,676	)
Borrowings under revolving commitment		—			86,270
Other financing activities		(226	)		(31	)
Net cash provided by financing activities		136,514			3,134
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(1,354	)		1,301
Net increase (decrease) in cash, cash equivalents and restricted cash		158,174			(188	)
Cash, cash equivalents and restricted cash at beginning of year		39,578			17,139
Cash, cash equivalents and restricted cash at end of period	$	197,752		$	16,951
Supplemental disclosure of cash flow:
Interest paid	$	70		$	1,722
Income taxes paid	$	5,900		$	4,154
Supplemental disclosure of non-cash investing and financing activities:
Capital leases	$	995		$	—
Property and equipment in accounts payable	$	228		$	144
Follow-on public offering costs in accounts payable	$	15		$	—
Promissory notes issued and deferred payment obligations for acquisitions	$	278		$	12,440
Issuance of common stock in connection with acquisitions	$	—		$	8,712
Issuance of common stock with put rights	$	—		$	2,352
Initial public offering costs in other long-term assets	$	—		$	866

The following table provides a reconciliation of Non-GAAP net income and Non-GAAP diluted income per share to net income (loss) and income (loss) per share – diluted, the most comparable GAAP financial measures (in thousands, except per share amounts):

	(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	7,307		$	(29,626	)	$	12,740		$	(39,060	)
Stock-based compensation expense		563			25,265			1,213			39,302
Amortization of intangible assets		1,739			1,189			5,665			3,287
Non-recurring adjustments		(4,400	)		—			(4,400	)		—
Income tax effect of non-GAAP adjustments*		(151	)		7,172			(658	)		11,546
Non-GAAP net income	$	5,058		$	4,000		$	14,560		$	15,075
Income (loss) per share – diluted	$	0.10		$	(0.59	)	$	0.17		$	(0.78	)
Non-GAAP income per share – diluted	$	0.07		$	0.06		$	0.19		$	0.24
GAAP diluted shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, diluted		76,709			50,606			74,182			50,374
Non-GAAP diluted shares outstanding:
Number of shares used in computing net income per share, diluted		77,000			62,800			77,000			62,800

* The income tax effect of non-GAAP adjustments for 2018 is affected by the U.S. valuation allowance.

The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure (in thousands):

	(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	7,307		$	(29,626	)	$	12,740		$	(39,060	)
Income tax expense		2,600			8,012			4,629			6,353
Stock-based compensation expense		563			25,265			1,213			39,302
Interest expense		31			634			92			1,793
Interest income and other(1)		(4,384	)		(53	)		(5,103	)		(2,184	)
Depreciation and amortization		3,370			2,811			10,895			7,895
Adjusted EBITDA	$	9,487		$	7,043		$	24,466		$	14,099

(1) Includes a) gain on the sale of a building for $4.4 million for the three and nine months ended September 30, 2018, b) an impairment charge for royalty contracts and trade names resulting in $0.8 million and $2.6 million of expense for the three and nine months ended September 30, 2018, and c) a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for both the nine months ended September 30, 2018 and September 30, 2017.

The following table provides a reconciliation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure (in thousands):

	(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net cash provided by operating activities	$	3,109		$	(8,662	)	$	40,422		$	17,455
Capital expenditures		(2,203	)		(2,032	)		(5,333	)		(4,367	)
Free cash flow	$	906		$	(10,694	)	$	35,089		$	13,088

The following table provides a reconciliation of projected Non-GAAP net income to projected net income, the most comparable GAAP financial measure (in thousands):

	(Unaudited)
	Three Months Ending December 31, 2018				Year Ending December 31, 2018
	low		high		low			high
Net income	$	5,500	$	6,500	$	18,300		$	19,300
Stock-based compensation expense		600		600		1,800			1,800
Amortization of intangible assets, net of tax		1,800		1,800		6,800			6,800
Non-recurring adjustments		—		—		(4,400	)		(4,400	)
Non-GAAP net income	$	7,900	$	8,900	$	22,500		$	23,500

The following table provides a reconciliation of projected Adjusted EBITDA to projected net income, the most comparable GAAP financial measure (in thousands):

	(Unaudited)
	Three Months Ending December 31, 2018				Year Ending December 31, 2018
	low		high		low			high
Net income	$	5,500	$	6,500	$	18,300		$	19,300
Income tax expense		1,700		1,700		6,300			6,300
Stock-based compensation expense		600		600		1,800			1,800
Interest expense		—		—		—			—
Depreciation and amortization		3,500		3,500		14,500			14,500
Interest income and other non-recurring adjustments		200		200		(4,900	)		(4,900	)
Adjusted EBITDA	$	11,500	$	12,500	$	36,000		$	37,000